Australia's consumer watchdog has ruled against a proposed joint business agreement between Qantas and Japan Airlines, saying the alliance would leave travellers worse off by reducing competition on Australia-Japan routes as international travel resumes.
"Airlines have been severely impacted by the pandemic and this has been a very difficult period for them," admitted Australian Competition and Consumer Commission Chair Rod Sims.
"But preserving competition between airlines is the key to the long-term recovery of the aviation and tourism sectors, once international travel restrictions are eased."
Qantas and Japan Airlines pitched their plan in December 2020 with the aim of launching it in July 2021 as part of a gradual restart of overseas flying, with Japan considered among several promising 'travel bubble' destinations for Australia.
"The joint business means we'll be able to build on our existing relationship with JAL through Oneworld to offer more routes, better flight connections and more benefits to frequent flyers” Qantas Group CEO Alan Joyce said at the time.
A tighter hold on the market
In 2019, the year before the Covid-19 pandemic swept the world, Qantas and Japan Airlines together flew about 85% of passengers travelling between Australia and Japan.
The ACCC says that in addition to being each other's "closest competitors" on the largest Sydney-Tokyo route, they were the only airlines operating on the second largest route between Melbourne and Tokyo.
"The ACCC concluded that granting the authorisation would not only remove competition between Qantas and Japan Airlines, it would make it very difficult for other airlines to operate on routes between Australia and Japan."
Virgin Australia petitioned the ACCC to say "it would be more difficult to enter the Australia-Japan route if it is required to compete with Qantas and Japan Airlines acting jointly rather than as individual competing airlines," the ACCC revealed.
The ACCC says the Qantas and Japan Airlines alliance "would have allowed the airlines to stop competing on all aspects of price and service for three years."
"The ACCC can only authorise an agreement between competitors if it is satisfied the public benefits would outweigh the harm to competition. The alliance did not pass this test."
Both Qantas and JAL expressed disappointment at the ACCC's denial of the proposed Qantas/JAL hookup, saying that while the airlines would continue their existing codeshare and Oneworld partnership, this would "not provide the same benefits than would have been possible under a joint business."
The airlines touted "enhanced frequent flyer benefits and more premium travel opportunities for Qantas and JAL customers" as one of the wins for passengers, along with an expanded codeshare relationship "to up to 29 destinations and better flight schedules between Australia, New Zealand and Japan."
Qantas Domestic and International CEO Andrew David said he was "obviously disappointed with this decision. A closer partnership between Qantas and Japan Airlines would have meant more routes, better flight connections and more benefits to frequent flyers. None of these benefits will be realised following the ACCC’s decision."
Cairns-Tokyo route scrapped
"We know the recovery of international travel is going to be slow and bumpy. It will take years for the whole travel and tourism industry to fully recover from COVID, so getting the policy settings right is going to be critical as key routes are rebuilt essentially from scratch. Getting that right will ultimately benefit the recovery of the Australian economy."
David said this also meant Qantas' proposed direct flights between Cairns and Tokyo would not take off.
"Without being able to coordinate with JAL, and in particular to draw Japanese tourists into northern Queensland using JAL's extensive marketing reach in Japan, the planned flights between Cairns and Tokyo are just not commercially viable for Qantas."
However, ACCC head Sims believes Qantas could commence this new route on its own merits, and noted that "Jetstar services on this route are currently planned to start again from February 2022, without the alliance."